TMI Blog2015 (10) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowed. The assessee’s only plea before the CIT(A) was that weighted average based on time (no. of days) in which investments were made should be considered. As rightly contended by the ld. DR, the above stand of the assessee cannot be sustained in view of the clear mandate of Rule 8D(2)(iii) of the Rules, which refers to only the average value of investments as appearing in the Balance Sheet of the assessee as on the first and last day of the previous year. One cannot travel beyond the language of Rule 8D(2)(iii) of the Rules. In the absence of any other plea by the assessee in this regard, the disallowance has to be sustained. However, we find that the Hon’ble Delhi High Court in Joint Investments Pvt. Ltd. (2015 (3) TMI 155 - DELHI HIGH COURT ) has held that disallowance u/s. 14A of the Act cannot be in excess of the tax exempt income. Following the aforesaid decision, we direct the AO to restrict the disallowance to income that is exempt in the set aside proceedings under Rule 8D(2)(iii) of the Rules, after complying with the directions with regard to disallowance of interest expenses under Rule 8D(2)(ii) of the Rules. - Decided partly in favour of assessee for statistical pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Average of Assets = 69,23,38,631 (C) AxB C = 40,60,973 (c) As per Rule 8D 2 (iii) 0.5% of average investment = 12,03,34,866 x 0.50% = 6,01,674 Rule 8 D2( ) + Rule 8D2(iii) = 46,62,647 Therefore ₹ 46,62,647 is added back to the income of the assessee u/s 14A of IT Act, 1961. 4. Before the CIT(Appeals), the assessee submitted as follows:- On Disallowance of interest expenses invoking Rule 8D(2)(ii) of the Rules: That the Assessee had incurred interest expense against the business following aspects before CIT(A): i) The Interest debited to profit loss account of ₹ 2,33,64,542/- which was considered by the assessing officer for disallowance under Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in building Investment in machinery Investment in subsidiary 31/3/2006 118,234,771 - - - - - 31/3/2007 145,515,128 300,000,000 130,240,687 - 62,270,612 - 31/3/2008 328,751,010 300,000,000 110,105,846 - 195,440,732 - 31/3/2009 368,389,285 300,000,000 - - 195,440,732 100,000,000 ix) The Assessee pointed out that from the above table, it would be evident that interest debited to profit loss account of ₹ 2,33,64,542/- was towards earning of business income only and not towards earning of dividend income. On disallowance under rule 8D(2)(iii) of the Rules: The Assessee also pointed out that Rule8D (2) (iii) states that an amount equal to 0.5% of the average of the value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Aggrieved by the order of CIT(Appeals), the assessee has preferred the present appeal before the Tribunal. 7. The submissions made by the ld. counsel for the assessee are almost identical to the submissions as were made by the assessee before the CIT(Appeals). In particular, it was submitted before that the quantum of exempt income in the form of dividend earned by the assessee was only a sum of ₹ 9,728, whereas disallowance made by the AO invoking the provisions of section 14A of the Act was a sum of ₹ 46,62,647. The ld. counsel for the assessee brought to our notice the decision of the Hon ble Delhi High court in the case of Joint Investments Pvt. Ltd. v. CIT, ITA No.117/2015 dated 25.2.2015 , wherein the Hon ble High Court expressed the view that disallowance u/s. 14A of the Act cannot, in any case, exceed the dividend income. Following were the observations that were brought to our notice:- 9. In the present case, the AO has not firstly disclosed why the appellant/assessee s claim for attributing ₹ 2,97,440/- as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is deri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the question of disallowance of interest expenses under Rule 8D(2)(ii) to the Assessing Officer for fresh consideration with a direction to the assessee to furnish the required details to substantiate its claim as made before the CIT(Appeals). 11. As far as disallowance under Rule 8D(2)(iii) is concerned, the assessee has not shown as to what is the expenditure to be disallowed. The assessee s only plea before the CIT(A) was that weighted average based on time (no. of days) in which investments were made should be considered. As rightly contended by the ld. DR, the above stand of the assessee cannot be sustained in view of the clear mandate of Rule 8D(2)(iii) of the Rules, which refers to only the average value of investments as appearing in the Balance Sheet of the assessee as on the first and last day of the previous year. One cannot travel beyond the language of Rule 8D(2)(iii) of the Rules. In the absence of any other plea by the assessee in this regard, the disallowance has to be sustained. However, we find that the Hon ble Delhi High Court in Joint Investments Pvt. Ltd. (supra) has held that disallowance u/s. 14A of the Act cannot be in excess of the tax exempt income. F ..... X X X X Extracts X X X X X X X X Extracts X X X X
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